How Slow is the Recovery of Loans to Firms in Italy?

Abstract

This paper studies the characteristics of the recent evolution of loans to non-financial firms in Italy from an historical perspective, with the aim of ascertaining whether the ongoing recovery is creditless; the main demand- and supply-side determinants of credit are also discussed. We find the following results. First, bank loan dynamics have been weak compared to the universe of recoveries in 13 euro-area countries since 1980; however, credit has evolved in line with the median pattern in the restricted sample of recoveries following deep and long recessions and/or recessions associated with banking crises. Second, the reduction in loans has been common to firms of all sizes, though it has been more pronounced for smaller ones. Third, based on a review of credit market indicators, survey evidence and econometric studies, the weakness of lending to firms has been in line with subdued dynamics of demand; the stringency of lending criteria has also contributed, in particular for smaller and riskier firms.

Keywords: creditless recovery, credit demand, credit supply, small firms financing

JEL Classification: E32, E50, G20